The ultimate cheat sheet for what you should do with all of your money

In the history of capitalism, this is the hardest time ever to
invest. People are going broke, losing their jobs, and fear more
than greed rules the news and tries to rule thoughts.

In short: people are scared. And I do think the uncertainty is
going to rise quickly so I wanted to put this note together.

In 2001 and 2002 I lost all my money through bad investing. The
same thing happened to me on a couple of occasions after that.

So why should anyone listen to me about investing? You shouldn't.
You shouldn't listen to anyone at all about investing. This is
your hard-earned money. Don't blow it by listening to an idiot
like me.

Here's my experience (and perhaps I've learned the hard way about
what NOT to do and a little bit about what TO do.):

I've run a hedge fund that was successful. I ran a fund of hedge
funds, which means I've probably analyzed the track records and
strategies of about 1000 different hedge funds.

I've been a venture capitalist and a successful angel investor (I
was a HORRIBLE venture capitalist though - but I put that under
the category of "does not work well with others").

I can't raise money anymore. Nor do I want to play that game. I
don't BS about my losses and everyone else does.

So I'm not in that business anymore. It's too much work to run a
fund anyway.

In the past 15 years I've tried every investing strategy out
there. I honestly can't think of a strategy I haven't
experimented with.

I've also wrote software to trade the markets automatically and I
did very well with that.

And I've written several books on my experiences investing, with
topics ranging from automatic investing to Warren Buffett, to
hedge funds, to long-term investing (my worse-selling book, "The
Forever Portfolio", which has sold 399 copies since it came out
in December 2008, including one copy for the entire last
quarter).

Incidentally, why publish a book called "The Forever Portfolio"
during the worst financial crisis in history. I begged my
publisher (Penguin) to postpone but they couldn't. "It's in the
schedule" was their magic incantation. Publishers largely suck.
The good news is: they will never make back the advance.

That said, all of the picks in that book have done excellently
since then but the one thing I am proud of is that I made a
crossword puzzle for the book. I don't know of any other
investing book with a crossword puzzle in it.

So, Ok! Let's get started. Don't follow any of my advice. This is
advice that I do and follow and it works for me.

A) SHOULD I DAYTRADE?

Only if you are also willing to take all of your money, rip it
into tiny pieces, make cupcakes with one piece of money inside
each cupcake and then eat all of the cupcakes.

Then you will get sick, and eat all of your money, but it will
taste thrilling along the way. Which is what daytrading is.

B) I DON'T BELIEVE YOU. MANY PEOPLE DAYTRADE FOR A LIVING.

No. I personally know of two. Maybe three. And they work 24 hours
a day at it and have been doing it for a decade or more. So
unless you want to put in that amount of time and be willing to
lose a lot first then you shouldn't do it.

One more thing: when you daytrade and lose money it's not like a
job.

When you go into a job you NEVER lose money. If you show up for
two weeks, you get paid. Even if you have been warned repeatedly
about sexual harassment you still get paid. You might get fired
but they won't take your money.

The stock market TAKES your money on bad days. Sometimes it takes
a lot of your money. We're not used to the brutality of that and
it can destroy a person psychologically, which makes one (me)
trade even worse.

C) WELL, WHO MAKES MONEY IN THE MARKET THEN?

Three types of people:

1) People who hold stocks FOREVER. Think: Warren Buffett (has
never sold a share of Berkshire Hathaway since 1967) or Bill
Gates (he sells shares but for 20 years basically held onto his
MSFT stock).

2) People who hold stocks for a millionth of a second (see
Michael Lewis's book "Flash Boys" which I highly recommend.) This
is borderline illegal and I don't recommend it.

3) People who cheat.

I've seen it for 20 years. I've seen every scam. I can write a
history of scams in the past 20 years.

One time I wanted to raise money for one of my funds. I went to
visit my neighbor's boss. The boss had been returning a solid 12%
per year for 20 years.

Everyone wanted to know how he did it. "Get some info while you
are there," a friend of mine in the business said when he heard I
was visiting my neighbor's boss.

The boss said to me, "I'm sorry, James. We like you and if you
want to work here, then that would be great. But we have no idea
what you would be doing with the money. And here at Bernard
Madoff Securities, reputation is everything".

So I didn't raise money from Bernie Madoff although he wanted me
to work there.

Later, the same friend who wanted me to get "info" and "figure
out how he does it" said to me: "we knew all along he was a
crook."

Which is another thing common in Wall Street. Everybody knows
everything in retrospect and nobody ever admits they were wrong.

Show me a Wall Street pundit who says "I was wrong" and I'll show
you...I don't know...something graphic and horrible and
impossible [fill in blank].

D) So how can one make money in the market?

I told you about: #1. Pick some stocks and hold them forever.

E) What stocks should I hold?

Warren Buffett has some advice on this (and I know because I
wrote THE book about him. A friend of mine who knows him told me
my book was the only book that Buffett thought was accurate about
him).

He says, "if you think a company will be around 20 years from now
then it is probably a good buy right now."

I would add to that, based on what Warren does. It seems to me he
has five criteria:

a. A company will be around 20 years from now.
b. At some point, company's management has demonstrated in some
way that they are honest, good people. If you can get to know
management even better.
c. The company's stock has crashed for some reason (think
American Express in early 60s, which he loaded up on. Or
Washington Post in the early 70s. Or Coca-Cola in the early
80s).
d. The company's name is a strong brand: American Express, Coke,
Disney, etc.
e. Demographics play a strong role.

With Coke, Buffett knew that everyone in the world would be
drinking sugared water before long. Who can resist? He also
started buying furniture companies right before the housing boom.
He knew that as the population in the US grows, people will need
chairs to sit on.

Note that Buffett is not what some people call a "Value
investor". But I won't get into that discussion here.

F) WHAT ELSE?

One time I accidentally got an email that was intended for a
famous well-known investor. It was from his broker and contained
his portfolio. I can't say how this accident happened but it did.

Of course, I opened the email.

This is a man who writes about lots of stocks.

His entire portfolio was in municipal bonds.

I don't know whether or not municipal bonds are good investments.
But I would look into stocks that are called "closed-end funds"
that invest only in municipal bonds.

They usually pay good dividends, usually trade for less than
their cash or assets in the bank, and are fairly stable (it's
very hard for a municipality to not pay back its debts for
various reasons, some of them constitutional).

But do a lot of research into the towns.

I'll tell you one story. I had an idea for a fund in 2008 when
oil was crashing at the end of the year.

Stocks / funds that invested in municipal bonds in Texas were
getting destroyed. Somehow, because oil was going down, everyone
naturally assumed that Texas was going to simply disappear. I
researched every municipal bond out there and found a good set of
Texan cities that were being sold off with everyone else even
though they had nothing to do with oil.

I pitched it to a huge investor who had told me he wanted to back
me on any idea I could come up with.

He loved the idea. He loved it so much he told me, "You're too
late. We already have about $500 million in this strategy and we
bought the very stocks you are recommending."

They went up over 100% in the next six months while the world was
still in financial collapse. So he made a lot of money.

As for me, I didn't put a dime into my own strategy and made
nothing.

G) SHOULD I PUT ALL OF MY MONEY IN STOCKS?

No, because you'll never know anything about a company and you
won't get the kind of deals that Warren Buffett gets.

So use this guideline:

- no more than 3% of your portfolio in any one stock. But if the
stock grows past 3% you can keep it. To quote Warren Buffett
again: "If you have Lebron James on your team, you don't trade
him away."

- no more than 30% of your portfolio in stocks (unless some of
the stocks grow, in which case you just keep letting them grow).

G, PART 2) WHAT IF WE ARE IN A BUBBLE?

Bubbles don't mean anything. We had an internet bubble in the
90s. Then a housing bubble. Bubbles bubbles bubbles. And if you
just held through all of that, your stock portfolio would have
been at an all time high last Friday.

So ignore cycles and bubbles and ups and downs.

And NEVER EVER read the news. The news has no idea about the
financial world and what makes it tick. Any investing off the
news is like taking out your eyes because you trust a blind
person to drive you to work.

H) MY FRIEND HAS A BUSINESS IDEA. SHOULD I INVEST IN IT?

Probably not. But if you want a checklist, make sure these four
boxes can be checked:

a. The CEO has started and sold a business before.
b. The business is a sector with a strong demographic headwind
behind it. (or is that a tailwind?)
c. The company has revenues and/or profits.
d. You are getting a really good deal. (This is subjective but
you can look at similar companies and what they were valued at.)

I can say this: every time I have invested with this approach
it's worked miracles. And every time I have not invested in this
approach it's been a DISASTER. Like, a CLUSTERF*(*K

Claudia doesn't let me invest in a private company unless all
four items on my checklist apply.

Which is important because I tend to believe in everything people
tell me. So I'm happy to invest in a time portal black hole
machine.

I) WHAT DO YOU THINK OF BITCOIN?

I think bitcoin has about a 1 in 100 chance of being a survivor.
So I have 1% of my portfolio in bitcoin.

J) WHAT ABOUT METALS AS A HEDGE AGAINST INFLATION?

No, they have zero correlation with inflation. The best hedge
against inflation is the US stock market since about 60% of
revenues of the S&P 500 comes from foreign countries.

K) WHAT ABOUT METALS LIKE GOLD? DON'T THEY HAVE INTRINSIC VALUE?

The only currency in the history of mankind that had actual
intrinsic value was when people traded barley in the markets of
the ancient city of Ur. Since then, we've developed currencies
that we had to have faith in their value.

Every currency has faith and hope backing it. When people began
to lose faith in US currency (in the Civil War), the words "In
God We Trust" were put on the dollar bill to trick people into
having faith in it.

But if you're going to pick a metal, wait until the gold/silver
ratio gets higher than it's historical average and buy silver.

How come? Because silver is both a precious metal (like gold) and
an industrial metal (also like gold, but much much cheaper). So
there actually is some intrinsic value in silver.

I bought some silver bars back in 2005. But then lost them when I
moved. That's why nobody should listen to me about investing.

L) WHAT ABOUT MUTUAL FUNDS?

No. Mutual funds, and the bank representatives that push them,
consistently lie about the fees they are charging. I know this
from experience.

One time I accompanied a friend of mine who had made some money
(she was a model and had a good run for awhile) and was looking
to invest it. She asked me to go with her to see her bank
representative who had some "ideas". Because she was beautiful, I
went with her to the bank.

I didn't talk at all during the meeting but jotted down every
time the bank guy lied. He lied five times.

Afterwards I explained each of the lies to her.

What happened? She put all her money with the guy. "He's
practically family". I can't argue with a good salesman.

But he lied about the mutual funds' performance that he was
pitching, the fees they were charging, the commissions he was
charging, and a few more I can't remember now. I wrote an article
about it in the Financial Times back then.

Fact: Mutual funds don't outperform the general market so better
to invest in the general market without paying the extra layer of
fees.

Use the criteria I describe above, pick 20 companies and invest.

M) WHAT ARE SOME GOOD DEMOGRAPHIC TRENDS?

a. The internet. Yes, it's still growing.

b. Baby boomers retiring. They need special facilities to live
in. They need better cancer diagnostics and treatments.

c. Energy. The more people we have, the more energy we will
consume. Go for energy sources that are profitable and don't need
government subsidies. Whenever you depend on the government, you
could get in trouble.

d. Temp staffing. Every company is firing people and replacing
them with temp staffers.

e. Batteries. If you can figure out how to invest in Lithium,
then go for it.

and a dozen others. Feel free to list more in the comments.

N) IS A HOUSE A GOOD INVESTMENT?

Everyone will disagree with me on this but the answer is an
emphatic "NO!"

It has all the qualities of a horrible investment:

a. Constant extra layers of fees and taxes that never go away
(maintenance, property taxes, etc that all rise with inflation).

b. Usually housing is too-large a percentage of someone's
portfolio. Even just the down-payment ends up being the largest
expense of someone's life.

c. Usually massive debt is involved.

If you can avoid, "a", "b", and "c" and don't mind the
opportunity cost in the time required to maintain your house then
go for it. Else, rent, and use the money you saved for other
investments that will be less stressful and pay off more.

Fact: Housing has returned 0.2% per year in the past 100 years.

O) IF NO HOUSING AND ONLY 30% OF MY PORTFOLIO IN STOCKS, THEN
WHAT SHOULD I DO WITH THE REST OF MY MONEY?

Why are you in such a rush to put all of your money to work?
Relax! Don't do it!

There's a saying "cash is king" for a reason. I will even say
"cash is queen" because on the chessboard the king is just a
figurehead and the queen is the most valueable piece.

Cash is a beautiful thing to have. You can pay for all of your
basic needs with it.

You can sleep at night knowing there is cash in the bank.

I love a stress-free life. When I look back at the past 15 years,
the times when I've been most stressed is when I've been heavily
invested and the times when I've been least stressed is when I
had cash in the bank.

With cash in the bank you can also invest in yourself.

P) WHAT DOES THAT MEAN, "INVEST IN MYSELF?"

a. it costs almost nothing to start a business. Find something
people want and start posting information about it on a blog and
then upsell your services on the blog.

Or write 1000 small books about different topics and publish them
on Amazon. You can do this on the side while you learn and have a
full time job and then when you are ready, you can jump to your
other passive streams of income.

Note: It takes a lot of work to find "passive" income but when it
happens, it's worth it.

These are some ideas. There are many others.

b. Invest in experiences rather than possessions.

Figure out interesting and unique experiences you can have or
places you can go to (but they don't always have to be places).

Experiences pay much higher dividends than an extra TV or a nicer
car.

c. Books. Reading is the best return on investment. You have to
live your entire life in order to know one life.

But with reading you can know 1000s of people's lives for almost
no cost. What a great return!

Q) SHOULD I SAVE MONEY WITH EACH PAYCHECK?

No. Just try to make more money. That is easier than saving
money. I find that whenever I try to save money I end up spending
more. I don't know why that is. I'm a horrible spender, which is
probably why I've gone broke so many times.

Better to just make more with many streams of income so you don't
have to worry about going broke. And then saving will come
naturally as you make more money.

Don't forget that a salary will never make you money. After taxes
and the daily grind, and your exhaustion and the feelings of "I
hate my job", and then inflation and then new expenses (kids),
you will never be able to save. Avoiding Starbucks every day
won't make you a millionaire, that's a fact.

I say it glibly, "try to make more money". I know it's not that
easy. But in the long run, if you have a constant focus on
alternative ways to make more money, then you will.

R) WHAT ELSE SHOULD I DO WITH MY MONEY?

Forget about it.

Money is just a side effect of health.

I talk a lot about the daily practice I started doing when I was
at my lowest point.

I know now after years of doing it that it has worked. I've done
very well with it, and I started doing it when I was dead broke,
lonely, angry, depressed, and suicidal.

I didn't start it from a position of privilege.

And you don't have to buy my book. I'm not selling anything.

Here's the whole thing: stay physically healthy in whatever way
you know how (sleep well, eat well, exercise). Be around good
people who love you and respect you and who you love and respect,
and be grateful every day.

Think of new things each day (or all day) to be grateful for.
"Gratitude" is another word for "Abundance" because the things
you are most grateful for, become abundant in your life.

And finally, write down 10-20 bad ideas a day. Or good ideas. It
doesn't matter. After exercising my idea muscle for six months, I
felt like an idea machine. It was like a super power that just
wouldn't stop. More on this in another post.

Money and abundance in your life is a natural side effect of the
above. I know this for myself but now since writing about it for
almost four years I can tell you from the letters I get that it
works for others.

S) WHAT'S IN IT FOR YOU?

I don't know. I used to write about money stuff because I wanted
investors, or I wanted to sell books, or get speaking
engagements. Now I want none of that.

But I get worried that in a world of increasing economic
uncertainty that more and more people are getting "stuck" and are
scared about what is happening.

Too many people I know are nervous and depressed.

There's nothing else to know about investing your money. If your
bank tries to give you any advice just say, "thanks but I'm ok".

If they want you to put your money in a savings account, even "so
you can get the interest" I would politely decline. There's a
reason they are asking you to do this and I have no idea what it
is but it's not good for you.

You won't get rich investing your money but you can do very well.
And if you combine that with investing in yourself, you will get
wealthy.

But only if you remember that financial wealth is a side effect
of real inner wealth.

This is the most powerful investment you can do with your time
and your life.

You can always make money back when you've lost it.

But one single split moment of stress and anxiety you will NEVER
make back again.

Investing in the future will never bring back the past.

To be able to sit and not have a million stressful thoughts
racing through your head. To be able to appreciate everything
around you for the abundance it is.

Most people think they need to say "thank you" to the world.

But the world is constantly saying "thank you" to you for being
alive, for creating new things, new energies, new experiences.

Every day give the world at least one more reason to whisper
"thank you" to you.

If you can hear that whisper, everything else, every gift in
life, becomes expected. You earned it.